The US Securities and Exchange Commission (SEC) has named the heads of the five specialist investigation units and its market investigation unit – which were created last year, as it continued what it described as its biggest shake-up since its establishment in 1972.

Concurrently, SEC Enforcement Division director Robert Khuzami also announced new measures and tools designed to help the beleaguered agency, which has been criticised for missing massive fraud such as that perpetrated by Wall Street swindler Bernard Madoff, ferret out white collar crime earlier.

The appointments announced by the SEC include Thomas Sporkin, former deputy chief at the SEC’s Office of Internet Enforcement, who will take over the new Office of Market Intelligence. Bruce Karpati, founder and head of the commission’s Hedge Fund Working Group, and Robert Kaplan, previously an SEC enforcement division assistant director, will take charge of a unit focused on asset management.

A unit looking into large scale market abuses and manipulation will be led by Daniel Hawke, who was director of SEC’s Philadelphia office. Structured and new products will be overseen by Kenneth Lench, also formerly an assistant director at the SEC’s enforcement division. Cheryl Scarboro, previously an associate director in the SEC’s enforcement division, will head the unit focusing on violations of the Foreign Corrupt Practices Act, while Elaine Greenberg, former the associate regional director of the SEC’s Philadelphia regional office, will take up leadership of the unit scrutinising municipal securities and public pensions.

“These specialised units address both challenges through improved understanding of complex products and markets, earlier and better capability to detect emerging fraud and misconduct, greater capacity to file cases with strike-force speed and an increased in expertise throughout the division. By making connections between similar tips from different outside sources, our new Office of Market Intelligence will enable the division to better focus resources on those tips and referrals with the greatest potential for uncovering wrongdoing,” Mr Khuzami said.

Mr Khuzami also announced the agency will now authorise staff to use tools, inspired by those used by the Department of Justice and which were previously unavailable to them, in eliciting cooperation from companies and individuals during investigations.

They include cooperation agreements, which recommend the bestowal of credit for cooperation in investigations where substantial assistance has been rendered, and deferred prosecution agreements, where the agency agrees to forego for a limited period, any enforcement act provided the other party agrees to cooperate fully in an investigation and to comply with conditions either prohibiting or requiring certain actions.

Finally, SEC enforcement staff will be allowed to use non-prosecution agreements, in which the commission would agree to not prosecute an offender provided that they provide cooperation.

Mr Khuzami also said the SEC has also streamlined the process for submitting witness immunity requests to the Justice Department, as well as set out clearer guidelines on how it evaluates the cooperation provided by companies and individuals during enforcement investigations.

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Drug company Johnson & Johnson has been accused of paying tens of millions of dollars in kickbacks to a US nursing home pharmacy company to increase sales of drugs to patients.

The US Department of Justice (DoJ) said between 1999 and 2004, the pharmaceutical giant illegally paid Kentucky-based Omnicare, the biggest pharmacy serving nursing homes in the US, to buy Johnson & Johnson drugs and to promote their use at nursing homes. The kickback were directed towards a number of the company’s products, including Propulsid, Levaquin, Procrit, Duragesic, and Ultram, but the biggest share of the payments revolved around Risperdal, which is prescribed to help control anxiety.

According to the report which appeared in the Wall Street Journal, it is common in the pharmaceutical industry for drug makers to pay rebates for drugs sold through middlemen, such as Omnicare, whose role it is to process prescriptions, distribute the drugs, and manage insurance coverage. The practice is not illegal. Instead, prosecutors are accusing Johnson & Johnson of hiding the rebates, partly by disguising them as payment for information that Omnicare usually provides for free to drug company clients.

The report said that intermediary companies such as Omnicare often wield strong influence in the drug making business, because they determine the brands of drugs prescribed to millions of patients in the US.

The 34-page complaint cites evidence such as admission in internal presentations by Johnson & Johnson executives of the pivotal role played by Omnicare in product selection by nursing home patients. In one email, the company calculated that US$3 million in rebates would result in US$9 million in sales, with a net return of US$4.8 million. In 2000, the two companies entered into a four-year agreement, involving a payment of US$4.65 million to Omnicare, in return for the pharmacy company making an effort to persuade patients to switch to Johnson & Johnson products.

The complaint also alleges that Johnson & Johnson sponsored Omnicare’s annual national managers meeting at a Florida resort. Between 1999 and 2004, the drug company paid US$50,000 for the sponsorship each year, and in return its sales managers were able to rub shoulders with Omnicare managers, and persuade them to buy more of the company’s drugs. The report goes on to say that the DoJ complaint was brought about by two whistle-blowers who were former employees at Omnicare.

Johnson & Johnson, which is based in New Jersey, has responded by saying that its acts were “lawful and appropriate”, and that the company is looking forward to defending against the claims in court. The company did not elaborate further.

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